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9/5/2012 7:11AM

Confidence in Spanish Banks Ebbs

Nearly three months after Spain requested a €100 billion European bailout for its banks, the problems facing its frail banking system are deepening, putting pressure on the ECB to act. WSJ's David Enrich reports. Photo: Bloomberg

This transcript has been automatically generated and may not be 100% accurate.

I ... the the ... they see what European Central Bank ... the only although it's ... nice ... to see us well then the damage has been the key and loving outflow ... of deposits from Spain on ... the bases biggest deposits fell nearly five percent in July ... it's a lot of money ... yet the seventy five billion euro is and it's the most alarming thing is that this is not the first time this happens ... and a monthly drumbeat of ... this nasty data I'm so that for the past several months businesses this spring ... every month basically we're seeing a go down by a random give or take ... them out and it's it's it's ... not that big a proper one ... it starts to come from frequent due to but what's what's ... a lot and those affected is still hopping out the ECB has basically put together this bailout ... for Spanish banks who the son of the duo set aside ... but that's really ... been enough to read and I get ... a boost ... to call me and asked me it's clear that ... everyone from paying customers to potential perspective bank investors everyone ... is very remains very concerned citizens brings them ... to such a degree that are now willing to keep the money they're not want investment banks ... and that was a really serious problem for the financial sector in Spain and for the gears of the state massive banking sector ... and it you know bangs and rely on confidence and faith of customers investors and when you have this ... this massive outflow massive long-term outflow of funds ... it really imperils the future of the ... meantime stock despite the of the deposit rates making a ... lot more attractive to well ... there's been lots of pain in various ways advancement right of ... Forstall descent into last week the Spanish government had a lot a rule in place ... to put a cap on the interest rate banks can offer deposit so ... there's less we get to the Spanish government suspended that rule which is basically ... read the rules in place to be significant potentially very de stabilize and had ten stocks get hit at the time so even healthy banks then insert getting in trouble because it squeezes the profit margins it's not a sustainable with business so ... this last week to suspend a better rule that immediately set off the sponsors again ... with banks ... and techno theres all the way above four percent which is rode the Merkel would be for a very low interest rate environment ... to see and I with my band put off ... happily for that but what's ok I suspect he's been a company with pulses it's been going ... as you would normally to the European Central Bank ... they now these banks among other collapse will ... the ECB will be happy with a record low the ECB to in order to get month this offensive received more than four hundred billion euro as an ECB line has abandoned him for the initial start ... up ... to get those loans the banks to post collateral which is everything from government bonds to certain words and security is ... the prom is that banks have committed so much of their balance sheets already ... to get active collateral for the slums of the running low ... so the banks of the what this meant that want to see isn't even loving the biggest thing about this is to get the ECB to further loosen collateral requests to accept a wider range of ... lower quality assets and it ... it seems that a real possibility that the ECB at its regular monthly meeting tomorrow Thursday will go ahead and do that that's that's to be a density development of ... the tube in the meantime what's happened is that these banks another force they got to go to the Bank of Spain ... and say ... when the subway box ... well that's what it looks like no one's really quite sure on the Bank of Spain's monthly bouncy there is a mysterious jump in and other assets category with in other countries like Portugal and Ireland and Greece when this happened it's a sign that the those national central banks ... have activated there was called emergency liquidity assistance for which is basically ... that enables the national central bank ... isn't it does give money for very was very weak collateral to the banks in countries ... that haven't been ... however it's important that the US were not ... the no official confirmation that it actually is the latest being uses what looks like what analysts think ... no one really knows the bank's financial services the banks and extreme pressure okay tomorrow the ECB meets ... if they do come up with this more or less that two of the banks ... to think that way since then the slow funds make things easier well you ... know I don't but it will will do is make the flow of funds that has the funds less important because ... what everyone wants to avoid is a bank feeling over ... because it does runs of liquidity so it deposits or leave him there needs to be a replacement for that ... is the ECB is going to be the source of those funds ... I know that takes it lists in the short term it takes liquidity question off the table ... it will fry come as a bit of early fall but the most to expecting it to BBB this is the ECB has proven very Rich reliable ... over the past couple years intervention ... massive bank liquidity ... it's a good idea except the suspense is what it is we talking lots of Spanish banks have a cost of the European banks ... in Spain ... does that mean that there is that could be a problem of ... always does public spotting signs not there yet there's every risk in the main it contagion risk is actually ... a deal as in the Spanish banking system and more Missteps operative which ... so there's this really set the bigger question the ECB tomorrow ... is whether the series on Star binder on bottles ... and a beret ... and there's a bigger interest in doing that just because you know that ... all these other banks of the euro zone over the last ... paper so that's ... and two cents and several dozen witnesses up so that I see it so it can thank the much indeed for ...